WP2.8.4 with PHP 5.2.6
It appears the tag the_time() returns the date/time in the LOCAL SERVER timezone and NOT that specified in the admin/settings/general page.
That is to say that I posted a new test post at 20:52 UTC with the blog set to use UTC timezone (in admin), changed the template to show the timezone the_time('jS M Y H:i e') and the date/time showed as "20:52 America/Los_Angeles".
I've tried an auto and a manual setting. Changing the default timezone using php date_default_timezone_set().
There is clearly a bug in WP that is not setting the PHP default timezone to match the timezone set in the admin interface.
This will only affect blogs that are not in the same timezone as the server the blog is running from.